Insurance Fund Jitters Seem To Cool Banks' Ardor for Thrifts

Congressional debate over the thrift insurance fund appears to be reducing commercial banks' appetite to buy thrifts.

As Congress debates the future of the thrift charter and what holders of thrift deposits must cough up to recapitalize the Savings Association Insurance Fund, thrift acquisitions have fallen markedly.

So far this year only 39 deals for banks to buy thrifts have been announced. Eighty-one such deals were announced last year and 68 in 1993, according to SNL Securities Inc., Charlottesville, Va.

The pace has slowed markedly since spring, when the various insurance plans were proposed. Twelve deals were announced in April and 13 in May, but only seven in September.

"There's no question banks buying thrifts have to take this into consideration," said Donald K. Crowley, managing director of Smith & Crowley Inc., an investment banking firm in San Francisco. "They're still looking at thrifts and tire-kicking, but I can't help but believe that this keeps them from stepping up."

Of course, Congress may be only one reason for the decline. Others could be that fewer thrifts want to sell, and that those that do are demanding higher prices, some analysts said.

But the uncertainty about future policy is causing banks to be more cautious about buying thrifts.

"My hunch is that this is not stopping deals from happening, but will maybe delay them a little bit," said David Stumpf, bank analyst at Wheat First Butcher Singer in Richmond, Va. "Once they know what they're dealing with, they'll work that into the deal price and move on."

The new anxiety may be one reason why Bankers First, a thrift in Augusta, Ga., hasn't yet snagged a buyer after more than four months of merger talks, one observer commented.

"The insurance premium question is an unknown liability," said Michael Bowers, a consultant with Evans, Porter, Bryan & Co. in Atlanta. "It's like buying real estate with toxic-waste areas. It's hard to quantify, until after the fact."

Traditionally conservative by nature, bankers like to know what they're paying for, but the thrift industry at the moment offers many more questions than answers. This fear of overpaying may be keeping banks from opening their wallets at the moment, some said.

Under a worst-case scenario with the current proposals, a would-be thrift acquirer would suffer at least a double hit - having to pay both the one-time insurance premium to replenish the Savings Association Insurance Fund as well as an assessment to pay off the thrift industry's Fico bonds. The outlook worsens still if the bad-debt reserves of thrifts can't be written off.

"This puts us in a whole state of flux, no doubt about it," said Richard E. Weinman, executive vice president in charge of mergers at First Financial Bancorp. in Hamilton, Ohio. "We've talked with a number of thrifts that we'd like to get together with, but we don't know what's going to happen. Whatever happens will affect the equity of these thrifts substantially."

First Financial acquired three thrifts in the early 1990s, but hasn't bought one since.

Others interviewed were more skeptical as to whether the thrift debate in Congress was actually affecting the strategy of thrift buyers. With so few quality thrifts remaining in the market, banks can't afford to sit back and wait for the dust to settle, some said.

Investment bankers all acknowledged that the one-time premium payments facing banks with thrift deposits should at least be discussed in the sale negotiations, if not factored into the pricing.

But some don't buy the theory that the insurance fund uncertainties are holding up deals.

"I think down the road this situation is helping things, and clarifying the picture," said Christopher Quackenbush, principal at Sandler O'Neill & Partners in New York. "The assessment is a positive for the SAIF institutions, and doing away with bad debt recapture liability will be a positive for the banking industry. I think we can assume these things will happen."

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